2. Constructors Ltd, resident outside Australia, has been awarded the contract to construct a housing complex for athletes in Sydney for the Year 2000 Olympic Games. Construction is expected to take 5 months. Constructors engages Engineers Ltd, also resident outside Australia, to supervise the project. Consider the Australian tax liability of Constructors and Engineers.

What if construction of the complex takes over 12 months due to adverse weather conditions or industrial problems? What if, after completion of the complex within five months, Constructors is awarded a contract to construct athletes’ housing at another Olympic site in Sydney? It is expected that construction of this complex will also take eight months. Constructors uses a different firm of consulting engineers for this project. What if the contract for the second complex was awarded shortly after construction commenced on the first complex?

During the period of its operations in Australia, an employee identified land near one of the sites which he considered could be purchased and sold at a considerable profit. He informed the head office of Constructors which negotiated with the owner through a local real estate agent and purchased the land in an Australian resident company which in turn was wholly owned by an Australian resident subsidiary of Constructors (neither company having any other assets). The land was quickly onsold at a substantial profit effected by a sale of the shares in Constructors’ subsidiary. Will Constructors be taxable on the profit made on the shares in its subsidiary?

3. Manufactures Ltd which is resident in Europa has a branch in Australia. The branch pays an inter-company charge to head office covering the following:

- interest at 10% on a "loan" of part of the branch’s capital by head office;

- fee for accounting services provided by head office;

Manufactures pays a patent royalty of $100,000 to a related company in Ruritania in respect of manufacturing operations carried on by the branch. Manufactures has total external interest costs of $5,000,000 and it allocates in its financial accounts in accordance with Europa tax law a pro rata share of $500,000 of this interest to the branch in Australia based on its worldwide operations.

To what extent is deduction of these expenses required, permitted or prohibited under tax treaties? The Australian Taxation Office has disallowed the first and second deductions as not being relevant under Australian law and treaties, disallowed the third and fourth deductions on the basis that it is included in the cost of manufacture and reduced the fifth deduction to $7.50. Manufacturers also wishes to know whether it is possible to be taxed on a profit in Australia when overall it makes a loss if the results in Europa and Australia in relation to products sold in Australia are combined.

4. Advise on the Australian tax treaty consequences in the following situations involving M&M Co which is incorporated and managed in Europa:

(a) M&M has a permanent establishment in Australia which derives interest from a bank in Vietnam.

(b) M&M has a permanent establishment in Australia which derives interest from a bank in Chile.

(c) M&M has a permanent establishment in Vietnam which derives interest from a bank in Australia.

(d) M&M has a permanent establishment in Chile which derives interest from a bank in Australia.

5. Geologist is a resident of Europa. Her business is to conduct geological surveys to gain information to be used by clients in prospecting for minerals. Under a contract with Oil Ltd., she has carried out a survey of potential oil bearing structures in Australia. The contract provides for the payment of a sum of money on completion of the survey and for "royalties" at a rate per barrel of any oil produced by Oil Ltd for the area surveyed. Assume that oil has been discovered and is being produced. Consider the Australian tax treaty implications for Geologist. What difference would flow if Geologist were a company?

6. Albert is working as a mining engineer for Conglomerate Inc in Utopia. In January last year Conglomerate sent Albert to Australia to assist a local mining company on a two year assignment. Conglomerate paid Albert’s salary into a bank account in Utopia; it also paid the mortgage on his apartment in Utopia and private school fees for schooling of his children in Australia. The mining company provided free accommodation, and a chauffeur and vehicle for Albert and family during his stay. To what extent would Albert be taxable under tax treaty in Australia?

What difference would it make if in October last year Conglomerate called Albert back home because it was not satisfied with the quality of his work. After negotiating with Conglomerate, Albert accepted termination of his employment contract for a lump sum payment of $500,000.

Assume Albert received employee share options over shares in Conglomerate before coming to Australia which required that he work for three more years for Conglomerate before they could be exercised. Could Australia tax the benefit of the options or shares if they were exercised after he returned to Utopia? Would it make any difference if the options were granted while Albert was in Australia or were exercised while he was there? What if, while in Australia, Albert sold shares received from exercise of the options?